Advanced Accounting Summary Notes PDF

Advanced Accounting Summary Notes with AS Charts Sr. No. Chapter Name Page No. 1. Dissolution of Partnership Firm 1 2. Accounting for Employee Stock Option Plans 6 3. Bu...

Advanced Accounting Summary Notes with AS Charts Sr. No. Chapter Name Page No. 1. Dissolution of Partnership Firm 1 2. Accounting for Employee Stock Option Plans 6 3. Buy Back of Securities 9 4. Amalgamation of Companies 12 5. Internal Reconstruction 20 6. Accounting for Liquidation of Companies 21 7. Financial Statements of Banking Co. 27 8. Non-Banking Financial Company 35 9. Consolidated Financial Statements of companies 42 Charts - Accounting Standards 10. AS 4 - Contingencies and events occurring... 48 11. AS – 5 Net profits or loss for the period............ 49 12. AS 7 - Construction Contracts 50 13. AS 9 - Revenue Recognition 52 14 AS 17 - Segment Reporting 54 15. AS 18 - Related Party Disclosures 56 16. AS 19 - Leases 59 17. AS 20 - Earnings Per Share 64 18. AS 22 - Accounting For Taxes on Income 66 19. AS 24 - Discontinuing Operations 68 20. AS 26 - Intangible Assets 70 21. AS 29 - Provisions, Contingent Liabilities...... 72 TeachMe Academy (88887 Dissolution 88889) of Partnership Firm Dissolution of Partnership Firm Steps for Dissolution of partnership 1. Open Realisation A/c:- Transfer all assets at book values to realisation A/c except cash A/c and at Bank A/c (Asset A/c will be closed by transferring balances to realisation A/c) Realisation A/c.....Dr. xxx To Assets A/c (Individually) xxx
Debtors A/c & Provision for Bad debts A/c are separate accounts. Therefore Debtors A/c shall be credited with gross value.
Cash & Bank A/c to be prepared separately (It will be closed at the end). 2. Transfer of liabilities :- These A/c of outsiders liabilities & provisions to be closed / debited & credited to realisation A/c. Liabilities A/c......Dr. xxx Provisions A/c.......Dr. xxx To Realisation A/c xxx 3. Reserve & Balance to Profit & Loss Account to be transferred to partners capital A/c in old ratio. 4. Realisation A/c credited with actual amount realised by sale of asset or asset taken over by any by partner. Cash /Bank A/c........Dr. (Asset sold) xxx Partners Capital A/c...........Dr. (Asset taken Over) xxx To Realisation A/c. xxx 5. Exp. of dissolution & Actual payment of liabilities are debited to realisation A/c. By CMA, CS Rohan Nimbalkar 1 TeachMe Academy (88887 88889) Dissolution of Partnership Firm Realisation A/c........Dr. xxx To Cash A/c (Expenses or liabilities paid) xxx To Partners Capital A/c (Liabilities taken over by any partner) xxx 6. Profit or loss in realisation A/c is credited or debited to partners capital A/c in old ratio. 7. Close partner capital Accounts by making payment or collecting amount. In case of collection from partner In case of payment to partners Cash A/c......Dr. Partners Capital A/c......Dr. To Partners Capital A/c To cash A/c  Dissolution due to Insolvency of Partner Insolvency of a partner (First 7 steps are same as given above) Remaining partners (other than insolvent partner) will contribute in last agreed capital ratio. What is last agreed capital ratio? In case of fixed capital Method In case of fluctuating capital Method No need of any adjustment in capital Take capital ratio after all adjustment A/c. but before adjustment of loss on (Take ratio of capital A/c exclude Realisation. Current A/c). By CMA, CS Rohan Nimbalkar 2 TeachMe Academy (88887 88889) Dissolution of Partnership Firm Note: - Garner VS. Murray principle is not compulsory in India & PSR or capital ratio may be applied for sharing deficiency of insolvent partner depending on partnership agreement or facts given in the problem. If noting is specified in the problem then generally ratio is applied. 'GARNER VS MURRAY ‘Rule. Loss on realisation Loss due deficiency on of insolvency of a partner - Distributed in PSR to all partners in - Distributed to partners having credit Profit Sharing Ratio balance in their capital ratio. - Loss on realisation shall be brought in by solvent partner in cash Fixed Capital Fluctuation Method Capital Method Capital Ratio before Capital ratio after Adjustment all adjustment except realisation loss. By CMA, CS Rohan Nimbalkar 3 TeachMe Academy (88887 88889) Dissolution of Partnership Firm PIECEMEAL PAYMENTS Assets are sold / Realised step by step (Not at once) therefore payments are also made in pieces / parts as & when cash is received from sale or realisation of assets. METHODS Maximum Loss Method Highest Relative Capital Method - Each instalment realised is - Partners who has higher relative as final payment. & Partners capital, that is, whose capital is capital A/cs are adjusted on that greater proportion to his PSR is first basis each time when distribution paid. is made, following either Garner Vs. Murray Rule or PSR Step 1 – Capital of all partners are divided by their profit sharing ratio. Step 2 – Smallest amount of capital after division is treated as basic capital. Step 3 – Calculate capital of other partner multiplying their PSR to basic capital. Step 4 – Deduct capital step 3 from original capital which is excess capital. - By repeating process once or twice, we can ascertain excess capital of each By CMA, CS Rohan Nimbalkar 4 TeachMe Academy (88887 88889) Dissolution of Partnership Firm partner. Step 5 – Partners with largest excess capital will be paid first, 2nd payment to partner who ranks next until capital of partners are reduced to their Profit Sharing Ratio. By CMA, CS Rohan Nimbalkar 5 TeachMe Academy (88887 88889) Accounting for Employee Stock Option Plan Accounting for Employee Stock Option Plan
It is option for employees to purchase shares of company at the end of specified period.
Company enters into an agreement with employees for ESOP Matter of An Agreement - 1. Employee will get choice to purchase shares of company if they continue their service for minimum specified period. 2. It is an option for employee but is an obligation for company to issue shares. Therefore company shall book ESOP compensation after it enters in an agreement with employees.
Concept of ESOP - Example with date Agreement Date – 24th November 2018 Minimum Period to be completed – E.g. 5 years Vesting Date – 24th Nov. 2023 Exercise Period – E.g. 1 Year. ESOP Agreement Date Minimum period to Vesting Date Exercise period Not E.g. 24th Nov 2018 be completed 24th Nov.2023 E.g. 1 Year Exercised E.g. 5 years Grant Date Date on which It is period If not Vesting Period minimum which starts Taken / Date of (Minimum period of period of after vesting exercised Agreement service to be service is date in which then between employer completed by completed by employee will option & employee employee to become employee actually will Eligible for ESOP) purchase shares lapse By CMA, CS Rohan Nimbalkar 6 TeachMe Academy (88887 88889) Accounting for Employee Stock Option Plan Exercise Price – Discounted price compared to market price at which employees are allowed to purchase shares. Employees may leave their job before completion of minimum period, then in such case their option will lapse. Formula = [Applied every year] Expected shares for option x Discount x Period Completed Expenses already Minimum Period recognised till last year Journal Entries at the End of Each Year 1. Employee Compensation Expenses A/c..........Dr. Prepare working note To Employee Stock Options Outstanding A/c for calculation (Being expenses in respect of ESOP recognised during the year) 2. Profit & Loss A/c..................................................Dr. To Employee Compensation Expenses A/c (Being the transfer of Employees Compensation Expenses A/c to Profit & Loss A/c)) 3. At the time of issue of shares to employees for ESOP (After Completion of Minimum Period) Bank A/c.....................................................................Dr. [No. of options x Exercise Price] Employees Stock Options Outstanding A/c.........Dr. [No. of options x Fair value of option] To Share Capital A/c [No. of options x Face value] To Securities Premium A/c [No. of options x (Exercise Price + Fair value of option - face Value)] (Being ESOPs exercised during period) 4. If in any year after applying formula amount of expenses to be provided is negative then, such negative amount is treated as excess provision. By CMA, CS Rohan Nimbalkar 7 TeachMe Academy (88887 88889) Accounting for Employee Stock Option Plan Transfer such amount to General Reserve. This is mainly because all employee who enter into agreement may not retain for minimum period. Employee Stock Options Outstanding A/c................Dr. No. of options lapsed x Fair value To General Reserve A/c of each option NOTE – Same entry shall be recorded if there is a balance in Employee Stock Option outstanding Account after completion of exercise period. 5. If employee discontinue is job then he is not eligible for option, such option shall be Cancelled / forfeited. This cancellation shall NOT be treated as forfeiture. Important points 1. In the problem if market price & exercise price is given then Discount = Market Price – Exercise Price 2. In few problems we may find fair value of option then, there is no need to calculate option price & fair Value of option can be treated as Option Price / Discount. 3. Fair value of shares & fair value of share option is different a) Fair value of share is given = Market Price / Fair value of shares (-) Exercise / Issue Price b) Fair Value of Shares option = Discount
In case if it is specified in problem that options are exercised in same year than there is no need to create ESOP Outstanding Account and following entry is sufficient a) Bank Account......................................................Dr. ESOP Compensation Account.........................Dr. To Equity Share Capital Account To Securities Premium Account b) P & L Account.........................Dr. To ESOS Compensation Expenses Account By CMA, CS Rohan Nimbalkar 8 TeachMe Academy (88887 88889) Buy Back of Securities Buy Back of Securities Buy Back of Shares Means - Purchase back of shares by Company Buy back of Equity Shares Redemption of Preference Shares This Can be Done By a) Proceeds of fresh issue of shares b) By using Free Reserves; (Free reserve are transferred to CRR & then Bonus shares can be issued out of CRR) To maintain capital after buy back or redemption
Limits of Buy Back 1. 25% of Total Outstanding Equity Shares (In Numbers). 2. 25% of (Paid up Capital + Free Reserves)/Buy Back Price per share. (It includes Securities premium, P&L A/c, General Reserve but not Statutory Reserve). 3. Post buy back “Debt Equity Ratio” shall not exceed 2:1
Calculation of Number of Shares for Buy Back 1) Shares Outstanding Test Total Number of Equity Shares x 25% = ( XXX ) 2) Resource Test = 25% (Paid capital + Free Reserve)/ Buy Back Price = No. of shares ( xxx ). 3) Debt Equity Ratio Test a) Debt/ Loan at Present xxx b) Minimum shareholders Fund (Post Buy Back) {Step(a)/2} xxx c) Actual Shareholders Fund at Present xxx d) Excess shareholders fund over minimum [Step c-Step b] xxx By CMA, CS Rohan Nimbalkar 9 TeachMe Academy (88887 88889) Buy Back of Securities e) No. of shares for buy back xxx = Excess/Difference (Step d) Buy Back price + Provision For CRR Whichever is less from 3 tests. Journal Entries Redemption of Preference shares Buy back of Equity shares (i) Amount Due (i) Amount Due Preference share Capital A/c..............Dr. Equity share capital A/c......................Dr. Premium Payable A/c............................Dr. Premium Payable on Buy-back A/c...Dr. To Preference Shareholders A/c To Equity Shareholders A/c (ii) Amount Paid (iii) Amount Paid Preference Shareholders A/c...............Dr. Equity Shareholders A/c....................Dr. To Bank A/c To Bank A/c (iii) Adj. of Premium against Profit /Loss (iii) Adj. of Premium against Profit /Loss General Reserve/Profit &Loss A/c.......Dr. General Reserve/Profit &Loss A/c.....Dr. Securities Premium A/c..........................Dr. Securities Premium A/c.......................Dr. To Premium Payable A/c To Premium Payable on Buy Back A/c (iv) Transfer to Capital Redemption (iv) Transfer to Capital Redemption Reserves Reserves General Reserve A/c.................................Dr. General Reserve.................................Dr. Profit &Loss A/c................................Dr. Profit &Loss A/c...............................Dr. To Capital Redemption Reserves A/c To Capital Redemption Reserves A/c (v) Issue of Bonus Shares (v) Issue of Bonus Shares Securities Premium A/c.........................Dr. Securities Premium A/c.....................Dr. By CMA, CS Rohan Nimbalkar 10 TeachMe Academy (88887 88889) Buy Back of Securities Revenue Reserve A/c.............................Dr. Revenue Reserve A/c..........................Dr. General Reserve A/c...........................Dr. General Reserve A/c..........................Dr. P& L A/c...............................................Dr. P& L A/c..............................................Dr. To Bonus Issue to Shareholders A/c To Bonus Issue to Shareholders A/c (vi) Bonus to shareholders A/c..........Dr. (vi) Bonus to shareholders A/c.....Dr. To Equity Share Capital A/c. To Equity Share Capital A/c. Transfer to Capital Redemption Reserves = Nominal Value shares Redeemed - Nominal Value of shares issued Buy back has effect on mainly 3 items of Balance sheet Share Capital Reserve & Surplus Cash & Cash Equivalent (-)Buy Back Premium Payable (+) Proceeds of New issue (+) New Shares Capital Redemption Reserves (-) Payment of Buy Back (+) Bonus Bonus By CMA, CS Rohan Nimbalkar 11  AMALGAMATION & ABSORPTIONAmalgamation TeachMe Academy (88887 88889) & RECONSTRUCTION & Absorption & Reconstruction Scope of this chapter Amalgamation Absorption Reconstruction Virat Ltd. Anushka Ltd. X Ltd. Y Ltd. Virushka Ltd. External Reconstruction One existing company will take Internal over the another company X Ltd. (Losses) Reconstruction Y ltd. Further no existence New Co. (Similar Accounting Treatment) Amalgamation – Two companies dissolved & New company formed to take over business of two companies Absorption - One existing company took over business of other company. External Reconstruction - New Company will be formed to take over the business of existing / old company. Accounting Treatment 1. One or more company(ies) getting closed / dissolved in all above three types – Prepare Realisation Account. 2. Another company whether existing or new is taking over business – Pass Journal entries for business purchase. 3. Therefore, In case of amalgamation, Absorption & Reconstruction there is no change in accounting treatment. By CMA, CS Rohan Nimbalkar 12 TeachMe Academy (88887 88889) Amalgamation & Absorption & Reconstruction Purchase Consideration 1. Payment made to equity shareholders & Preference shareholders in form of Cash, Equity shares, Preference shares or debentures are treated as purchase consideration. 2. Therefore, payments to debenture holders in the form of cash / debenture are not treated as Purchase Consideration. 3. As well as realisation expenses paid by transferee company is not treated as purchase consideration. 4. Other payments of liability settlement is NOT Purchase consideration. Methods of calculating Purchase Consideration Net Asset Method Net Payment Method Lump-sum Method Assets Acquired xxx 1. Consider payment to equity & preference (Agreed Price) shareholders Only. Note:- Payment to debenture (-) Liabilities taken over (xxx) holders in cash or debentures is not considered. Net Assets xxx 2. Payment of Realisation expenses not considered. (+) Goodwill xxx 3. Purchase consideration – Total Purchase Consideration xxx Payment to equity shareholder of transferor Company in cash / shares / debentures XXX If payment is not given in problem or (+) Payment to preference shareholders of share issued is given but number of transferor co. in cash / shares/ debentures XXX Shares or price of shares is not given Purchase consideration XXX then follow Net Asset Method (-) Net Assets acquired As per 1st Method Goodwill / Capital Reserve XXX By CMA, CS Rohan Nimbalkar 13 TeachMe Academy (88887 88889) Amalgamation & Absorption & Reconstruction Intrinsic Value Of Share It is real value of shares on the basis of Net Asset in business All Assets (At current Price) xxx (-) All Liabilities (xx) Net Asset xxx Intrinsic Value of shares = Net Assets No. of equity shares. ACCOUNTING TREATMENT Amalgamation in the Amalgamation in the Nature of Merger Nature of Purchase Conditions for Merger (5 fere) If any of the condition is not fulfilled / Satisfied. 1. All assets & liabilities are taken over (As well as reserves are acquired). Then it is treated as purchase. 2. At Book Value only. 3. Same business will be carried on. Accounting as per purchase method. 4. At least 90% of shareholders of transferor Company ready to become shareholder of new company. 5. Consideration paid in shares except fractional Shares. Accounting as per pooling of Int. method. By CMA, CS Rohan Nimbalkar 14 TeachMe Academy (88887 88889) Amalgamation & Absorption & Reconstruction Intention – To come together & do business Consequences Accounting as per purchase method. 1. All reserves are also acquired with assets 1. Reserves are not acquired (If nothing & Liabilities. is specified then all assets including cash & bank after adjustment realisation expenses shall be acquired. 2. Assets & liabilities are shown at Book 2. Assets & liabilities are shown at Value. agreed price. 3. Excess payment for net asset or 3. Excess / Less payment for realisation realisation expense of transferor company. of expenses. a) Extra payment – Deducted from a) Extra Payment treated as goodwill General reserve / P&L A/c. b) Less Payment treated as Capital b) Less Payment – Added in GR / P&L A/c. Reserve. (No effect to Goodwill / Capital Reserve) If realisation expenses paid by transferee Statutory Reserve – In case of company of transferor company Purchase, reserves are not acquired. Deduct from P & L A/c / General Therefore separate treatment is Reserves. required for statutory reserve. Transferee company must show Statutory Reserves statutory Reserve in their Books of In case of merger all reserves are Accounts / Balance sheet. acquire at the time of business purchase. Journal Entry Hence Statutory Reserves are also acquired Amalgamation Adjustment A/c...........Dr. Due to this there is no need to give To Statutory Reserve separate treatment for statutory reserves. Shown in Reserve & surplus Shown in Reserve &Surplus as negative (Previously it was required to be shown on Asset Side). By CMA, CS Rohan Nimbalkar 15 TeachMe Academy (88887 88889) Amalgamation & Absorption & Reconstruction This separate treatment of A/c is required in the books of Transferee Company. There is no change in accounting treatment in books of transferor whether it is purchase or merger. In the books of transferor co. If preference shareholders are discharged / settled at premium, then such payment to preference shareholders shall be treated as loss for equity shareholders And such loss shall be debited to realisation Account / Equity shareholders Account. Journal Entries In the books of transferor company (No change in following entries whether it is purchase / merger) 1. To close Asset Account - Realisation Account...........Dr. xxx To Assets Account (Individually) (At B.V.) xxx 2. To close Liabilities Sundry Liabilities A/c.……..Dr. (Individually) (At B.V.) xxx Account - To Realization A/c. xxx (Note: Debtors Account & Provision for doubtful debts A/c both are separate A/c. Hence Debtors A/c shall be credited with Gross value & provision for doubtful debts Account shall be debited with its value) 3. To close share capital Equity share capital A/..........Dr. xxx & reserve Account Reserve A/c.............................Dr. (Individually)xxx To Equity Shareholders A/c xxx Preference share Capital A/C.....Dr. xxx By CMA, CS Rohan Nimbalkar 16 TeachMe Academy (88887 88889) Amalgamation & Absorption & Reconstruction To Preference shareholders A/c xxx 4. Purchase consideration Due Transferee Co./ New CO. A/c....Dr. xxx To Realisation A/c xxx 5. Sale of assets not Cash A/c............................Dr. xxx taken over by new co. To Realisation A/c xxx 6. Paid of liabilities not Realisation A/c...................Dr. xxx taken over by new co. To Cash A/c xxx 7. Purchase Consideration Received Cash/Bank A/c.…………………..Dr. xxx Shares in New Co. A/c….......Dr. xxx Debentures in New co. A/c.…Dr. xxx To New Company A/c xxx 8. Payment to Pref. share holders Preference shareholders A/c...Dr. xxx To Cash / Bank A/c xxx (If any excess amount paid, then such amount debited to realisation/ Eq. shareholders A/c). 9. Payment to Equity Shareholders Equity Shareholders A/c..........Dr. xxx To cash / bank A/c xxx To Eq. shares of transferee Co. A/c xxx 10. Liquidation expenses Realization A/c.…………………..Dr. xxx To Cash/Bank A/c. xxx Note - If problem states two companies are merged it doesn’t mean it is merger, please check conditions given. By CMA, CS Rohan Nimbalkar 17 TeachMe Academy (88887 88889) Amalgamation & Absorption & Reconstruction In the books of New Company (Transferee Company) 1. Business Purchase A/c Business Purchase A/c.………………..Dr xxx To Transferor co. / Vendor co. A/c. xxx(p.c.) 2. Recording of assets and Asset A/c........................................Dr. xxx Liabilities. To Liabilities A/c xxx To Business Purchase A/c xxx If Extra amount paid then, Assets A/c.…………………..Dr. xxx In merger no concept of Goodwill A/c..…………………..Dr. (Bal. Figure) xxx G/W or Capital Reserve To liabilities A/c. xxx then profits / difference To Business Purchase A/c. xxx adjusted in General Reserve / P&L A/c. If less paid then, Asset A/c.........................Dr. xxx To liabilities A/c xxx To Business Purchases A/c xxx To Capital Reserve Account (Bal. Figure)xxx 3. Purchase Consideration Paid. Transferor Co. A/c............Dr. xxx To Cash / Bank xxx To Equity shares xxx To Debentures xxx 4. Realisation Expenses of transferor company paid by transferee. Goodwill A/c........Dr. xxx (In case of purchase) P&L A/c / General Reserve A/c.......... Dr. xxx (In cases of merger) To Cash/ Bank A/c xxx By CMA, CS Rohan Nimbalkar 18 TeachMe Academy (88887 88889) Amalgamation & Absorption & Reconstruction If following words are given in problem. What does it mean? Discharged at Premium Vs. Issued at Premium Paid at premium No securities premium A/c is involved Securities premium A/c is involved Just Extra payment is made for settlement Ex. ₹ 11,00,000 preference shares are in cash / shares. discharged by issuing preference shares For Example - 11,00,000 preference shares are of ₹ 100 @ 10 %Premium. discharged at 10% premium by issuing Preference shares of transferee company 11,00,000 – liability is constant 11,00,000 + 10 % = 12,10,000 11,00,000/ 100 + 10 12,10,000 are Preference shares issued and Premium = 10,000 shares x ₹ 10 transfer it share capital amount. =1,00,000 Transfer 1,00,000 to securities premium Account Remaining in Preference share Capital. Transferor company sold goods to transferee company at profit before amalgamation. (vice versa) Inventory remaining with other company which is taken over back. Then such inventory contains unrealised profit & such profit shall be reversed. 1st effect – deduct it from inventory & 2nd effect – deduct it from P&L. Special Adjustment Debentures of 5,00,000 discharged at premium of 20% @ ₹ 96 i.e. (96%). Hence 5,00,000 + 20% = ₹ 6,00,000. No. of Debentures = 6,00,000 / 96 = 6,250 X ₹ 100 (Face value) = 6,25,000. By CMA, CS Rohan Nimbalkar 19 TeachMe Academy (88887 88889) INTERNAL RECONSTRUCTION Internal Reconstruction Objectives of Internal Reconstructions 1. Is to write off losses & fictitious assets. 2. To show actual position of business through new balance sheet. 3. For writing off losses there must be profit which is possible by either reducing capital liabilities or increasing asset value. 4. Such profit shall be credited to capital reduction/ reconstruction A/c and then losses/ fictitious Assets shall be written off be debiting capital reduction account 5. If there is credit balance in capital reduction account even after writing off losses and fictitious Assets then such profit/balance shall be transferred to capital reduction/ reconstruction account Liabilities Balance in present Balance Sheet Balance is not shown in Balance sheet Paid less amount than liability Unrecorded liabilities. Examples Liabilities A/c.....................Dr. 1. Preference divided payable. To Bank A/C 2. Unrecorded Creditor. To Capital Reduction A/c - Entry for only amount paid - Capital Reduction A/c........................Dr. To Bank A/c In this case balance was not available in balance Sheet and it is unrecorded still we have to make Payment. Hence it is additional liability. This Will be debited in CAPITAL Reduction A/c. Amount which is not paid shall be ignored. By CMA, CS Rohan Nimbalkar 20  Liquidation of Companies TeachMe Academy (88887 88889) Liquidation of Companies
Required in this Chapter - Statement of Affairs Liquidators statement of final Account (Problem may specify that receiver & liquidator both are appointed) Deficiency Account (as per list H - Minimum 3 years) List B Contributories Statement of Affairs List to be attached with Statement of Affairs List A – Assets which are not specifically pledged. List B – Assets which are specifically pledged (Secured). List C - Preference share creditors (Government dues, employees). List D – Floating charge on debenture holder. List E – Unsecured Creditor. List F – Preference shareholders. List G – Equity shareholders List H – Deficiency Account Format of statement of Affairs Particulars Amount Assets which are not specifically pledged (as per list ‘A’) Cash/Bank xxx Debtors xxx Machinery xxx xxx Assets which are specifically pledged (as per List B) Particulars Estimated Amt. due Deficiency Surplus Of Asset realizable to secured Transfer to carried to values creditors Unsecured outer ₹ creditors Column ₹ Estimated Amount Available for Payment xxx By CMA, CS Rohan Nimbalkar (88887 88889) 21  TeachMe Academy (88887 88889) Liquidation of Companies Summary of Gross Asset 1. Gross realisable value of assets specifically Pledged xxx 2. Other Assets xxx Gross Assets xxx Summary of Gross Liabilities Gross Liabilities Liabilities xxx Secured Creditors (As per list B)to the extent to which claims are estimated to be covered by assets specifically pledged. - xxx Preferential creditors (as per list ‘C’) XXX Estimated balance available for Debenture holders & XXX unsecured Creditors. xxx Debenture holders secured by a floating charge (as per list ‘D’) XXX Estimated balance available for Unsecured creditors. xxx Unsecured creditors (as per list ‘E’) Balance/Surplus for Preference / Equity Shareholders. XXX Preference shareholder (AS Per List E). XXX Equity Shareholder (AS per List G). XXX Estimated surplus / deficiency as required to Contributors (list H) XXX List H Deficiency Account (Shall be prepared for previous 3 years) - 1 Statement No. Particulars Amount A. Items contributing deficiency 1. Excess of Capital & liabilities over Assets (Opening Balance of Loss) xxx 2. Net dividend & Bonus during period (Equity+ Preference) xxx 3. Net Treading Losses after charging expenses, tax etc. xxx 4. Losses other than trading losses xxx 5. Loss on realisation of Asset xxx 6. Other losses xxx By CMA, CS Rohan Nimbalkar (88887 88889) 22  TeachMe Academy (88887 88889) Liquidation of Companies B. Items reducing deficiency 7. Excess of Assets over Capital & Liabilities (Opening balance of profits) xxx 8. Net Trading profit after charging expenses etc. xxx 9. Profits & Income other than trading xxx 10. Other Items (Profit on realisation of asset) xxx Deficiency xxx
Preferential Creditors 1. All Government dues E.g. Taxes. 2. Salaries & wages (salary / wages of 4 months for workers and excess of salary / wages due over 4 months treated as unsecured). 3. Contribution to employee state insurance. 4. Compensation to employees in respect of death and disablement. 5. Pension fund/Gratuity fund. Remuneration of Liquidator  If percentage of remuneration is given on total assets realised then remember that percentage shall be calculated on total amount received from assets specifically pledged + Assets not specifically pledged. And if ‘Surplus’ from assets specifically pledged is given then ‘Add’ payment to secured creditors to find out total amount realised from assets specifically pledged.  If percentage is given on payment to unsecured creditors, then ‘Deduct’ all payments, expenses & other remuneration from total assets to find Payment / amount available for unsecured. If amount is sufficient to pay unsecured If amount is not sufficient creditors & Remuneration Treat that amount = 100 + percentage = Amt. available x percentage of remuneration Percentage on total Amount of 100 + Percentage Unsecured Creditors given in Question. By this, we can separate amount made to unsecured creditors. By CMA, CS Rohan Nimbalkar (88887 88889) 23  TeachMe Academy (88887 88889) Liquidation of Companies Liquidators Final Statement of Affairs Receipt ₹ Payments ₹ To cash & Bank Balance xxx By Legal Charges / Expenses xxx To Assets realised (Individually) xxx By liquidators Remuneration xxx (Assets not Specifically pledged) By Preferential Creditors xxx To surplus from assets specifically xxx (Debenture + Interest) - Pledged. -If Company is solvent To calls in arrears xxx Interest upto date of payment To calls made on uncalled shares xxx -If Insolvent Interest upto date of winding up Note – At the time of payment to By Unsecured Creditors xxx equity shareholders we shall By Preference shareholders with xxx consider that Loss suffered by accrued dividend (if any) each class of shareholder By calls in Advance xxx shall be same). By Equity shareholders xxx xxx xxx In case one class of Equity Share - Paid 100 (fully paid-up) and another class of shareholders paid 80 (fully paid) then suitable adjustment shall be made to keep loss per share same for both classes of share. For calculation assume that full amount is received and find total amount received after calls. Total amount available / total no. of shares (Uniform Price) = Amount repayable if full amount is received per share By CMA, CS Rohan Nimbalkar (88887 88889) 24  TeachMe Academy (88887 88889) Liquidation of Companies Explanation Suppose above calculation shows that amount repayable is ₹ 30 (After assumption) then class of shareholders who paid 100 shall get ₹ 30 and class of shareholders who paid ₹ 80 will get ₹ 10. (30 – 20) = 10 (Payable) (Receivable) (Payable) Important Concept If one share of ₹ 100 Face Value & another is of ₹ 50 Face value. 100 FV – 1,00,000 Shares 50 FV – 1,50,000 Shares Total - 2,50,000 Shares Then make / convert equity shares to uniform price of ₹ 100. After conversion ₹ 100 Face value = 1,00,000 shares Then 1,50,000 at ₹ 50 Face Value is How much? 50 1,50000 converted to 100 FV = 75,000 Hence Total shares at uniform price of 100 = 1,75,000 (1,00,000+75,000) Liquidation Process in case Receiver is appointed by Debenture holder. If receiver / liquidator both are appointed then receiver will sale specific assets given in problem and collect surplus after payment of secured liabilities. Then he will make payment in following sequence. 1. Receiver’s Expenses 2. Receiver’s Remuneration 3. Preferential Creditors 4. Debenture holders with interest due 5. Remaining surplus with receiver after payment of other items shall be transferred to Liquidator. By CMA, CS Rohan Nimbalkar (88887 88889) 25  TeachMe Academy (88887 88889) Liquidation of Companies Liquidator will collect surplus from receiver and sell other items & payment shall be made as a) Liquidation Expenses b) Liquidation Remuneration c) Unsecured Creditors d) Preference shareholders including arrears (if any) e) Equity Shareholders (Prepare working note of notional calls to find out net amount payable / receivable to equity shareholders). By CMA, CS Rohan Nimbalkar (88887 88889) 26  TeachMe Academy (88887 88889) Financial Statements of Banking Companies Financial Statements of Banking Companies Rebate on Bill Discounted - It is basically advance income for bank. - This is unexpired portion of discount or it is discount / interest related to next year which is received in current year - It is treated as liability (similar to advance income) - Rebate on bill discounted is advance income / liability for current year but it is actual income for next year Journal entries In the books of Bank First Year:- Particulars Entry ₹ 1. Bills received for Bill Purchased/Discount A/c.................Dr. (Full Value) xxx discounting. To Customer A/c (Full value after Discount) xxx To Interest / Discount A/c xxx Year end :- Particulars Entry ₹ 2. Discount / interest related to Interest/Discount A/c..........................Dr xxx next year is Transferred to To Rebate on Bill xxx rebate Account (liability). (Above balance in rebate A/c is income of next Year) Remaining Balance:- Particulars Entry ₹ 3. Remaining balance in Interest / Discount A/c..................................Dr. xxx Interest / discount A/c To P&L A/c. xxx transferred to P&L A/c By CMA, CS Rohan Nimbalkar 27  TeachMe Academy (88887 88889) Financial Statements of Banking Companies In Next Year Particulars Entry ₹ 1. Last year rebate / advance interest is Rebate on Bill discounted A/c........Dr. xxx income of current year which shall To Interest/ Discount A/c xxx be reversed & transferred to interest / discount account (Income) 2. Bill received & Discounted Same Entry of 1st Year (1st Entry) - 3. Transfer to rebate A/c Same Entry as 2nd entry of 1st Year - 4. Remaining balance transferred to P&L A/c - -
Solution for Question No. 9 (Page No. 132) from regular batch notes. Journal Entries Sr. Particulars ₹ ₹ No. 1. Rebate on Bill Discounted A/c...........Dr. 9 To Interest /Discounted A/c 9 (Being transfer of opening balance and rebate on Bills Discounted to interest A/c) 2. Bills purchased A/c.................Dr. 4000 To interest / Discount A/c (4000 x 18% x 73/365) 144 To Customer A/c (4000-144) 3856 3. Interest/ Discount A/c.........................Dr. 10.8 To Rebate on bill (600 x 18% x 36.5 / 365) 10.8 (Being unexpired portion of discount in respect of discounted bill carried forward to next year) By CMA, CS Rohan Nimbalkar 28  TeachMe Academy (88887 88889) Financial Statements of Banking Companies 4. Interest/Discount A/c (9+144-10.8) 142.2 To P&L A/c 142.2 Ledger Accounts 1) Interest Discount A/c Date Particulars Amount Date Particulars Amount 2012 To Rebate on Bills Disc. 10.8 2011 By Rebate o Bill 9 2012 To P&L A/c 142.2 2011-12 By Bill purchased 144 153 153 2) Rebate on Bills Discounted A/c Date Particulars Amount Date Particulars Amount 2011 To Interest/Discount A/c 9 2011 By Balance b/d 9 2012 To Balance C/d *10.8 2012 By Interest A/c 10.8 19.8 19.8 Bills for collection (View point of Bank) 1. When bills for collection received. Bill for collection (asset) A/c...............Dr. To bill for collection (liability) A/c 2. When bills are collected on dishonoured. Bill for collection (Assets) A/c...............Dr. Reverse Entry To Bill for collection (Asset) A/c In case for bills of collection, bank shall collect amount and bank shall pay this amount to customer. In this case, bank will not get any amount except commission (If any). Therefore, in this case amount is receivable to bank & immediately it is payable to By CMA, CS Rohan Nimbalkar 29  TeachMe Academy (88887 88889) Financial Statements of Banking Companies customer & to maintain record, bank treat this bill for collection as asset as well as liabilities. If bank accepted any bill or endorsed any bill then it creates liability on bank. Therefore bank will create acceptances, endorsements and other obligations account. Non Performing Assets (NPA) It is a loan / advanced for which the principal or interest remained overdue for period of 90 days or more. Further classification of NPA Sub-Standard Assets Doubtful Assets Loss Assets Assets which has remained NPA Assets which has remained Asset is treated as loss for less than or equal to 12m. NPA For more than 12 m. asset If is recognised as NPA < 12 months NPA > 12 months uncollectable by In this Case authorised person of NPA = Substandard asset bank or RBI Rates of Provisions No. Category of Advances / Assets Rates % 1. Standard Assets/ Advances Direct advances to agricultural and Small and Micro Enterprises (SMEs). 0.25 Advances to Commercial Real Estate- Residential Housing Sector (CRE-RH). 1.00 All other loans & advances not included in above. 0.40 2. Sub- standard Advances Secured Exposures 15 Unsecured Exposures 25 Unsecured Exposures in respect of Infrastructure loan. 20 By CMA, CS Rohan Nimbalkar 30  TeachMe Academy (88887 88889) Financial Statements of Banking Companies 3. Doubtful Advances - Unsecured Portion 100 4. Doubtful Advances - Secured Portion For Doubtful up to 1 year 25 For Doubtful > 1 year and up to 3 years 40 For Doubtful > 3 years 100 5. Loss Advances/Assets 100 Recognition of Interest In case of performing Assets In case of Non- Performing Assets Interest on loan is recognised when it is Interest on loan is recognised only when it is Earned / due (No need to wait till receipt) received Capital Adequacy Ratio Objective - To strengthen the soundness and stability of the banking system. Capital Adequacy Ratio = Capital Fund Risk Funded / Weighted Asset Minimum requirements of capital fund in India a) Existing Banks 9% b) New Private Sector Banks 10% c) Banks undertaking insurance business 10% d) Local Area Banks 15% By CMA, CS Rohan Nimbalkar 31  TeachMe Academy (88887 88889) Financial Statements of Banking Companies Risk weighted assets Items % of risk - Cash balance 0 - Cash balance with RBI 0 - Cash balance with / Loan to Government 0 - Loan Guaranteed by Government 0 - Balance with other Bank 20% - Other Investment 100% - Premises, Furniture & Fixtures 100% - Bank Staff Advances 20% - Investment in Government Securities 0 - Investment in other approved securities / In other Banks / in Security repayment of which is guaranteed by bank 20% - TDS, Advance tax, interest Due on government securities 0 Loan to public 100% Other Assets 100% Off balance sheet items - Guarantee & other obligation 100% - Acceptance, endorsement & letter of credit 100% Capital Fund (Tier I + Tier II ) Tier I Capital Particulars ₹ Paid up Share Capital xxx (+) Statutory Reserve xxx (+) Securities Premium xxx (+) Reserve (Capital reserve arising out of sale of Assets) xxx xxx By CMA, CS Rohan Nimbalkar 32  TeachMe Academy (88887 88889) Financial Statements of Banking Companies Tier II Capital Particulars ₹ Capital Reserve & Other Reserve XXX (Less) Discounted to extent of 55% (XX) XXX (Less) Intangible Asset (XX) XXX Financial statements of Banking Companies Form Of Profit & Loss Account Profit and Loss Account or the year ended 31st March, 20..... Particulars Sch. No. CY ended PY ended 1. Income xx xx Interest earned 13 xx xx other income 14 xx xx Total xxx xxx 2. Expenditure Interest expended 15 xx xx Operating expenses 16 xx xx Provisions and contingencies Total xxx xxx 3. Profit / Loss xx xx Net profit/loss (-) for the year (1-2) xx xx Profit / loss(-)brought forward xx xx Balance carried over to balance sheet xx xx By CMA, CS Rohan Nimbalkar 33  TeachMe Academy (88887 88889) Financial Statements of Banking Companies Important Points to Remember  Transfer to reserve (Statutory Reserve) shall be out of current year’s profits only.  In schedule No. 13 for “Interest Earned” if interest & discount includes interest on Investment, deduct it and show it seperately in same schedule 13.  Balance of rebate of current year shall be deducted from interest & discount in schedule 13 & Opening balance of rebate shall be added if it is not yet included.  Provision & conntengencies shall include - 1. Substandard Doubtful Asset 2. Provison for taxation {Percentage of tax given ( Total Income – Interest expended + other expenses + provision for standard, substand doubtful assets)}. By CMA, CS Rohan Nimbalkar 34 TeachMe Academy (88887 88889) Non – Banking Financial Companies Non-Banking Financial Companies Features of Non-Banking Financial Companies (NBFC) - NBFC is similar to banking but some services are restricted to NBFC. - NBFC cannot accept demand deposits. - General functions of NBFC 1. Giving Loans 2. Giving Guarantee 3. Insurance & Investment - Following NBFC’S require registration under RBI. 1. Loan Company 2. Core investment company 3. Infrastructure / Asset Finance Company - Conditions Must have net owned funds of not less than 200L What is Net Owned Fund 1st Owned Fund 2nd Net Owned Fund Paid up Capital xxx Owned Fund xxx (+)Free Reserves xxx (-) Investment in subsidiary xxx (-) Losses/Differed Exp. (xx) Excess of Investment over Owned Fund xxx 10% of owned funds) By CMA, CS Rohan Nimbalkar 35 TeachMe Academy (88887 88889) Non – Banking Financial Companies Provisioning requirement on standard, substandard Asset Particulars Non – systematically Systematically IMP NBFC IMP NBFC Standard Asset.25%.35% Sub Standard Asset 10% 10% Doubtful asset on unsecured 100% 100% Doubtful Assets on Secured Portion - Upto 1 Year 20% 20% - 1 Year to 3 Year 30% 30% - More than 3 year 50% 50% Loss Asset 100% 100% Provisioning Norms on Hire Purchase & Lease Particulars ₹ Installment Due but not received xxx (+) Installment due in future xxx (-) Interest Income not yet recognized in future (xx) (-) Depreciated Value of Asset (xx) Basic Provision xxx Additional Provision - Where hire charges over lease rental overdue % of provision Upto 12 month Nil 12 month and Upto 24 month 10 % of Net Book Value 24 month and Upto 36 month 40 % of Net Book value 36 month and Upto 48 month 70 % of Net Book Value More than 48 month 100 % of Net Book Value Calculation of Net Book Value By CMA, CS Rohan Nimbalkar 36 TeachMe Academy (88887 88889) Non – Banking Financial Companies Particulars Amount Total Investment due and not due xxx (-) Future Installment Interest (xx) (-) Provision made (xx) Net Book Value xxx Classification of Assets of NBFC 1. Standard Assets - No Defaulting repayment (Not NPA Yet) 2. Sub – Standard Assets - Assets are classified as NPA for period not exceeding 12 months (Previously it was 12 m.) 3. Double Asset - Asset classified as substandard asset for period exceeding 12 months (Previously it was 14 months) 4. Loss Asset - Recognised as not recoverable by management / Auditor NPA:- An Asset in respect of which interest has remained overdue for 3 months (Previously It was 6 months) Not Paid 3 months NPA 12 Months After 12 months Standard Substandard Doubtful Asset Unless Recognised as loss asset by Management / Auditor By CMA, CS Rohan Nimbalkar 37 TeachMe Academy (88887 88889) Non – Banking Financial Companies Short Note on Earning Value When value of shares is calculated on the basis of earning then it is treated as / known as earning value Steps - 1. Calculate average profits after tax 3 years (After preference dividend & after adjustment of extra ordinary items) 2. Divide the average profit calculated above by total no. of equity shares, to find out per share earnings. 3. Earning Value = Per share earning Capitalisation Rate Manufacturing Company Trading company Other company 8% 10% 12% If company is loss making company then earning value is treated as 0 By CMA, CS Rohan Nimbalkar 38 TeachMe Academy (88887 88889) Non – Banking Financial Companies Capital to Risk Weighted Asset Ratio Capital Employed x 100 CRAR (Minimum 15% is expected) = Risk Weighted Assets Capital Employed Tier I Tier II Cannot be less than 10% Preference shares other than Compulsory convertible xxx Net Owned Fund (+) Revaluation Reserve xxx (Refer Previous Explanation) (+) Capital Reserve xxx (+) Perpetual Debt Instrument xxx Risk Weighted Assets Particulars Risk weights Cash & Bank Balance 0 Investment in approved scheme 0 Bonds of public sectors Bank 20 Fixed Deposit / Certificate of Deposits / Bonds of Public finance instrument 100 Stock in Hire Purchase System 100 Inter corporate loan 100 Loan to staff 100 Other secured loans 100 Bills purchased & discounted 100 Premises & furniture 100 By CMA, CS Rohan Nimbalkar 39 TeachMe Academy (88887 88889) Non – Banking Financial Companies Interest Income Recognition On NPA On Receipt Basis Interest Income Recognition On Regular Asset On Accrual Basis Liquid Asset Requirement - Minimum liquid assets is to maintained by NBFC is 15% of public deposits outstanding 15% Not less than 10% Remaining Approved Securities Scheduled Commercial Bank Distinguish between NBFC and Bank Sr. No. NBFC Bank 1. Cannot accept demand deposits Can accept demand deposits. 2. Cannot issue cheques drawn on itself Can issue cheques drawn on itself. 3. NBFC is not part of payment & settlement system. 4. Deposit insurance facility of the deposit insurance & credit guarantee Cooperation (DICGC) is not available for NBFC. By CMA, CS Rohan Nimbalkar 40 TeachMe Academy (88887 88889) Non – Banking Financial Companies Companies Exempted from RBI 1. Housing Finance Companies – Regulated by National Housing Bank 2. Merchant Banking companies - Regulated by SEBI 3. Stock Exchanges - Regulated by SEBI 4. Stock broking companies - Regulated by SEBI 5. Nidhi Companies – Regulated by SEBI 6. Insurance Company – Regulated by IRDA 7. Chit Fund Companies – Regulated by respective State Government Registration & Regulation on NBFC 1. NBFC is not allowed to commence / carry on business without obtaining certificate of registration issued by RBI. 2. A company incorporated under companies Act 2013 and desirous of commencing business of NBFC. 3. Then it should comply following regulations. a) Should be registered under- companies Act. b) Should have net owned fund of 200L. c) Find then apply for registration with RBI. NBFC Non systematically NBFC – Systematically important important / Non deposit taking company Having Asset size below 500cr. Having Asset size below 500cr. Or above. Nidhi Company It’s a NBFC. Its core business is borrowing & lending money between their members They are also known as permanent fund, benefit fund or mutual benefit fund. CHIT Fund company (BHISSY) By CMA, CS Rohan Nimbalkar 41  Consolidated Financial V’Smart Academy (88883 88886) Financial Statement ConsolidatedofFinancial Companies Statement of Companies Subkuch Holding company ke point of view se Rule No. 1 Inter-company balances are required to be eliminated (to avoid double counting). a) Share capital of subsidiary is adjusted against investment of holding company at face Value – Remaining capital (Remaining capital belongs to minority & added to minority interest.) b) Inter-company debts/ loans shall be eliminated. - Inter-company balances of Debtors (Bills Receivables) and Creditors (Bills Payables) - Inter-company loans & advances will be cancelled. - Cash in transit or goods in transit shall be cancelled. Rule No. 2 Calculate minority Interest (Bacche logo ka hissa alag rakho nahi to rone lagenge) - If minority interest is negative in consolidated balance sheet then it is shown as negative figure on liability side, finally it will deducted form share capital. - When holding company acquires more than 50% but less than 100% shares of subsidiary company, then shares which are not acquired by holding company are treated as minority Shareholders. - Minority interest shall be shown separately to identify holding companies total interest in Subsidiary company. It is shown below shareholders fund. - Minority interest is the proportion of subsidiary companies net assets/shareholders fund. We can calculate minority interest with following formula Particulars ₹ Portion of share capital belongs to minority xxx (Add) Portion of pre-acquisition profit belongs to minority xxx (Add) Portion of post Acquisition profit belongs to minority xxx xxx By CMA, CS Rohan Nimbalkar (88887 88889) 42 V’Smart Academy (88883 88886) Consolidated Financial Statement of Companies Note:- Minority interest is calculated every time on date of consolidated balance sheet. Rule No. 3 Calculation of goodwill / Capital Reserve (Also known as Cost Control) 1. Generally calculated on date of acquisition 2. If value of investment in subsidiary company by holding company is higher than value of Net asset acquired (share capital + Reserve ) on acquisition date then difference is Goodwill And if the situation is opposite then there is Capital Reserve. 3. In this Case Investment cost for subsidiary company share will not be cancelled against Share capital of subsidiary company unless goodwill = difference is shown on asset side. Particulars ₹ ₹ Cost of investment xxx (-) Pre-acquisition of Investment (xx) Net cost of Investment xxx (-) Portion of net asset of subsidiary company (xx) Share capital xxx Reserve & Surplus on acquisition date xxx (xxx) Goodwill / (Capital Reserve) xxx By CMA, CS Rohan Nimbalkar (88887 88889) 43 V’Smart Academy (88883 88886) Consolidated Financial Statement of Companies Rule No. 4 Divide Reserve & Surplus in Pre-acquisition & Post Acquisition. Pre – acquisition Post – acquisition Portion belongs to Portion belongs to Share belongs to Share belongs to Holding company Subsidiary company Minority 20% majority 80% Example = 80% Example = 20% Adjusted in Added in calculation of minority Added in Reserve / goodwill interest along with their share P & L A/c / Capital Reserve capital. Calculation. Rule No. 5 If Assets & Liabilities are revalued on date of acquisition (such profit or loss is treated as pre- acquisition) 1. Revaluation of fixed assets upward / increasing either goodwill or capital reserve 2. Revaluation of assets downwards / decreasing Either Goodwill or capital reserve Assets to be shown at revalued price. Extra depreciation on increased price = Debited to P&L A/c. OR Reversal of Depreciation = Credited to P&L A/c. By CMA, CS Rohan Nimbalkar (88887 88889) 44 V’Smart Academy (88883 88886) Consolidated Financial Statement of Companies We can find out Net Asset By Option 1 Option 2 Assets (Revalued Price) xxx Share capital (FMV) xxx (-) Liabilities (Revalued Price) xxx (+) P&L A/c xxx Net Asset xxx (+) Reserves xxx (+) Revaluation Reserve xxx Holding Company Subsidiary Co. Net Asset xxx 80% 20% Follow this option if Assets / liabilities Holding Company Subsidiary Co. are revalued or share capital & reserve 80% 20% not given Rule No. 6 Dividend declared by subsidiary Company If declared out of pre-acquisition profit If declared out of post acquisition It is traded as recovery of cost of It is treated as Income & Credit to P&L investment & deducted from cost of A/c of holding company investment It has impact on calculation of Goodwill / Capital Reserve. By CMA, CS Rohan Nimbalkar (88887 88889) 45 V’Smart Academy (88883 88886) Consolidated Financial Statement of Companies Uniform Accounting Policy At the time of consolidation of Balance sheet of two entities, if policies are not uniform, Then before consolidation we must adjust the balances of Balance Sheet of subsidiary Company according to accounting policies / method adopted by holding company. Example: - Depreciation / Inventory valuation. Rule No. 7 If Debentures / Preference shares are acquired at higher or lesser price than face value - Treatment is similar to Rule No. 3 except pre-acquisition profit are not deducted here to find out goodwill or capital reserve. In case of preference shares In case of debentures Investment in preference shares shall be Investment in debentures shall be Cancelled as face value cancelled at Face value Difference shall be transferred to goodwill Difference shall be transferred to P&L A/c / capital reserve Note :- - If balance sheet of holding & subsidiary company is given but date of b/s of subsidiary company is different or is of previous year then prepare/ restate the balance sheet of subsidiary company as per date to match with date of balance of holding company. - If it is not given in question to restate balance sheet then find out balances of Assets & Liabilities on due date of Balance sheet of holding company. By CMA, CS Rohan Nimbalkar (88887 88889) 46 V’Smart Academy (88883 88886) Consolidated Financial Statement of Companies - If balance sheet of holding company & subsidiary company is not available on same date then consolidation is not possible. - Due to continuous losses minority interest may become negative such access & any other further losses applicable to minority (Negative balance) are adjusted and deducted form P&L A/c or Consolidated P & L A/c. - If subsidiary subsequent reports profit then all such profits are added / allocated in consolidated & P&L account until minority’s share of losses previously absorbed by majority has been recovered. By CMA, CS Rohan Nimbalkar (88887 88889) 47 TeachMe AS 4 - Academy (88887 CONTINGENCIES 88889) AND AS – 4 Contingencies EVENTS OCCURRING & Events E AFTER THE BALANCE occurring after …. SHEET DATE Events that occur after the Balance Sheet date but before approval of accounts by Governing body i.e. (Board of Directors) Adjusting Events are Non-Adjusting Events Non are Condition Events occurring The additional /Event information If Conditions of Adjusting after the balance events not satisfied exist on sheet date provide materially affects Balance additional the Amounts on Sheet Date. information on the the Balance Sheet date. Do not require adjustment conditions existing of Assets or Liabilities. on the BS date. Disclose Non - Adjusting events in report of Requires Adjustment in the balances of assets and Approving authority if liabilities as on Balance Sheet date significant (e.g., Board's Report) Example of Adjusting Events What to disclose Insolvency of customer - Conditions: -Nature Nature of events Nature of event, an estimate of financial effect, or a a. Condition of insolvency existed on balance sheet date. statement that such an b. Customer is not yet declared Insolvent on Balance sheet estimate cannot be made. date. c. He is declared insolvent after Balance sheet date but before Approval of Financial Statement by BOD. Then Balances of Debtors shall be adjusted by making Examples of Non Adjusting Events provision for doubtful debts for entire amount 1. Decline in market value of investment. 2. Major Business combination after Exceptions to the rule of Non-adjusting adjusting event Balance Sheet date. 3. Announcing plan to discontinue (a) Going concern assumption rendered invalid. operations. (b) Statutory requirements. 4. The distraction of a major production plant by a fire after reporting period. Even though above situations are Non- Non Adjusting 5. Announcing or commencing the Events, it should be adjusted as on Balance sheet implementation of a major restructuring. cturing. 6. Abnormally large changes after Balance Sheet date in asset prices or foreign exchange rates. 7. Commencing major litigation arising solely out of events that occurred after the reporting period. 8. Changes in tax rates announced after Balance sheet date By CMA, CS Rohan Nimbalkar 48  Chart - AS TeachMe – 5 Net profits/ Academy (88887 loss for the period, prior 88889) ASperiod – 5 Netitems & changes profits inthe or loss for Accounting pe period, Policies prior…….. Issues Discussed in AS-5 Presentation & Disclosure of Presentation and Accounting Treatment of Ordinary Extraordinary Prior Activities Activities Period Changes in Accounting Changes in Items. Estimates Accounting Policies These are Activities These items income or which are are not expenses A change in the A change in the Related expected to arise in the estimated amount in specific accounting normal occur as part current any items of FS principles and the course of of a business. period as a methods of applying business, & result of those principles